The story of this market continues to be the lack of volatility despite the Trump bump. It has been 37 days since the S&P 500 has seen a 1% move. While the put/call ratio has been above 1.0 we continue to see the VIX remain near multi-month lows. There is a lot of complacency with this market and volatility is non-existent. Volume rose during today’s session with the Dow narrowly missing a day of distribution. Leading today’s session was the NASDAQ inching ever so slightly higher with volume expanding. However, we continue to see the market stall while volume continues to build. If this rally has any legs left, we need to see higher prices soon otherwise this current action will be viewed as churn. In the end, we continue to monitor our stops and if this market turns sour we’ll be saved with our stops. The lack of volatility and upward price movement certainly raises our alert level.
We are seeing quite the historic level of complacency amongst market participants. Sure, from a geopolitical stand point we have worries. They are obvious, but price continues to ignore any risk and continue to push higher. Our yield curve continues to remain healthy and without an inverted yield curve it is very difficult to view any correction as the next big market crash. There are those out there who would love to see the market crash for various reasons. However, we don’t yet have the ingredients to see any major declines. We are long overdue for a 20% correction and a recession. History suggests we are on the cusp of another recession. The only real question is when and how do we know when it appears. As usual, price will be our guide and we’ll let other more “sophisticated traders” banter back and forth when an actual recession/market decline will hit.
Overall, this market continues within its current upward trend. The lack of volatility and strength here does give us some pause. We will be ready with our hedging signals. Besides, the market rarely falls hard on the first leg down. It usually takes the second leg to accelerate the downside move. Until then, we will continue operate in our current environment no matter how boring it may appear!
Cut those losses short!